Morning Report: 90% chance of ZIRP by the end of the month

Vital Statistics:


Last Change
S&P futures 2819 -145.25
Oil (WTI) 31.96 -9.49
10 year government bond yield 0.46%
30 year fixed rate mortgage 3.26%


Don your crash helmets, it is ugly out there. Stock index futures are limit down. Bonds and MBS are up.


The 10 year is trading at 0.46% after hitting a low of 0.33% in the overnight session. Granted, the Asian overnight session can be illiquid and whippy, but that is shocking. Oil is down 22% due to a tiff between Saudi Arabia and Russia. The German Bund hit a new record low yield, trading at -88 basis points.


The 30 year Treasury is up 10 points. 10. points. The yield is 0.88%. Astounding. The chart of the iShares 20 year government bond ETF looks like an internet stock circa 1999.


TBAs are participating in the bond market rally, but not like the 10 year. The 10-year bond is up 3.375 points this morning. 2.5% TBAs are up 1/2 of a point, and 3% and higher notes are up a quarter. So  rates will be better this morning, but not by as much as you think they should. Also, many correspondents have full pipelines, so they will be adding margin to their rate sheets. We may see little to no improvement over Friday. Just be prepared to explain that to your borrowers.


The March Fed Funds futures are predicting a 90%+ chance that the Fed will cut to zero at the March 18 meeting. The site cautions that the March 3 cut has made the probabilities somewhat inaccurate, but the bet is that we are back at ZIRP by the end of the month. Don’t discount the possibility of another intra-meeting cut. Check out the Feb 7 predictions… roughly a 90% chance of a 2% Fed Funds rate. Now it is a 90% chance of a 0% Fed funds rate.


fed funds futures


The week after the jobs report is usually data-light and this week is no exception. The only numbers of note are inflation, and those aren’t going to make any difference.


There are now 110,000 confirmed cases of Coronavirus. There are just under 30,000 cases outside China. 554 are in the US and it has resulted in 21 deaths. Italy is taking drastic measures to quarantine people, so if you had planned a trip to Milan or Venice this spring, you might want to re-think it.

43 Responses

  1. Everyone in the Denver office of Occidental (OXY) is freaking out.


    • Is their freakout justified do you think?


      • I think they’re worried that OXY will dump the CO, WY, MT assets. They’re running a bunch of scenarios right now Kasi said. She’s not high enough to be in any of those talks but her immediate boss is. Her area of expertise is called The Powder and is producing a lot but they’ll probably have to shut the rigs down, at least until, or if, the price comes back up. They’ve been trying to sell off some assets since the takeover without as much success as they’d hoped. I hope that’s not insider information……………..


        • The price will come back up, it always does. What will be interesting will be if Congress agrees w/Trump’s inclination to bailout industries that are suffering. It’s not like Congress doesn’t like to spend money, so really, it’s just the optics, how does he package it so that Pelosi can sell it to her base.


    • not a good day for oil stocks.


      • OPEC blowing up is the cause of that. It’s going to be interesting watching the Iranian’s reaction to first the Saudi’s and then the Russian’s opening the spigots. I think part of the Saudi strategy is to break the Iranians and the full-on Russian strategy is to break American fracking.


      • Probably a good day to buy SWA and hold it for a year. They will buy enough petroleum in this market to assure their low cost advantage when air travel comes back. I don’t know another airline that has hedged as well as SWA.

        Liked by 1 person

      • Yeah, Kasi and I both saw this earlier. She’s not too worried about her position in the company and has a Change of Control deal in place through August worth about $600K. She was upset today because they shut 3 or her 4 rigs down and put a lot of men and women out of work. She’s been to those rigs and met those people………….

        She’s also worried about her day care facility being shut down for our little guy but I told her if I have to choose between her dad and the 2 year old…………I choose the 2 year old………..LOL

        It was kind of a joke but also a bit real!


  2. Russia’s motivation is singularly to hurt US shale production and sales as it costs much more to produce from shale than from conventional drilling. Thus Russia did not want to go along with the OPEC proposed production cuts as the increase in oil prices would help North American shale and sand fracking to be competitive.

    So Saudi motivation is to destroy profits for the Russian oil based economy long enough to force Russia to comply. I don’t think Russia can last out the week in defiance of OPEC.



  3. Here is my sense of what’s going on without the political dynamics I hope (lol who am I kidding). President Trump missed the boat on assuring the American public, and maybe even the world, about our response here in the US. I think most Americans hope the President will calm our fears, and as a shock to me VP Pence is the voice of reason………..who knew?

    It wasn’t really his Katrina until he mislead the American people about the possibilities of it being serious. I think the market last week didn’t believe his crazy assertions that is was contained or a hoax by the Dems and it tanked. He threw a lot of mixed messaging out and called people “snakes” and hoped the people on the cruise ship would be contained there.

    He’s a narcissist and an asshole (sorry) and had the gall to say he had an uncle who taught at MIT so he gets the science……………DUDE!

    He doesn’t need the help of Dems to lose his second term………..

    My husband is one of the “at risk” so we’re doing what we can here to minimize our exposure. I promised Walter I wouldn’t let him get sick.


    • The action in the markets is not about Trump, IMO. I think it is a global risk-off trade.


      • I agree with that today Brent, and keep in mind I am not even remotely as versed as most of you are here in what is going on in the market.

        Honestly though, I think both the CDC,who effed up in the first tests, and Trump, who effed up in messaging are both to blame for the uncertainty in the market last week, and maybe that lead to the steps OPEC took today? There’s a certain satisfaction to be had in kicking someone when they’re down.


    • lms:

      as a shock to me VP Pence is the voice of reason………..who knew?

      I did, but that is probably because I generally assume that left-wing/media caricatures of Republicans aren’t true.

      his crazy assertions that is was contained or a hoax by the Dems

      He never asserted that coronavirus was a hoax.


      • The fact checking folks agree with you Scott.

        “Now the Democrats are politicizing the coronavirus. You know that, right? Coronavirus. They’re politicizing it. We did one of the great jobs . . . They tried the impeachment hoax. That was on a perfect conversation. They tried anything, they tried it over and over, they’ve been doing it since you got in. It’s all turning, they lost, it’s all turning. Think of it. Think of it. And this is their new hoax. But you know, we did something that’s been pretty amazing. We’re 15 people [cases of coronavirus infection] in this massive country. And because of the fact that we went early, we went early, we could have had a lot more than that . . . we’ve lost nobody, and you wonder, the press is in hysteria mode.“

        It’s hard to tell exactly what Trump means here. He could be calling coronavirus a hoax, concerns about its severity a hoax or Democrats’ criticism of his response a hoax. Reputable fact-checking institution Snopes rated the claim that Trump called coronavirus a hoax as a mixture of true and false, noting, “Despite creating some confusion with his remarks, Trump did not call the coronavirus itself a hoax.

        But plumbing his paragraphs for meaning is, uh, tricky.

        Liked by 1 person

        • Mark:

          But plumbing his paragraphs for meaning is, uh, tricky.

          I agree that it can be. But in this case I don’t think it is. In context, there is no fair or reasonable reading of his comments that could lead one to honestly claim that he was calling the virus itself a “hoax”. He was plainly talking about the Dem’s attempts to politicize it.


      • He never asserted that coronavirus was a hoax.

        He could make that a lot clearer, to be fair.

        He uses the word “hoax” when he’s talking about media over-reaction. He called it the new hoax–when what he’s saying, I think, is that the coronavirus scare is the new things the Democrats are using to attempt to demonize him. Which is true.

        He’s also personalizing it a little too much, which I don’t think is accurate. Hard partisans will put every bad event on Trump, but the news media would be going crazy about Coronavirus if Obama was president. Some things trump politics, and the desire to both get ratings and cause a panic that then generates its own rating-getting news would trump any love the media might have for a given politician.


        • KW:

          He could make that a lot clearer, to be fair.

          I suppose one could almost always be more clear, but in this instance I think it is perfectly clear that he was not calling the virus a “hoax”. And I think that most media narratives that presented him as doing so were knowingly deceiving their audience.


        • And I think that most media narratives that presented him as doing so were knowingly deceiving their audience.

          Maybe? I’m not as sure as you. I think that many of them–maybe most of them–are so enveloped in their own bubble and their own narrative that, despite hearing the exact same thing, they literally do believe that Trump called the Coronavirus a hoax, and think he’s basically President Alex Jones.

          Though I don’t see how their sincerity about believing things that aren’t really true makes them seem any better.

          In the Russian Collusion “hoax”, I 100% believe that the reporters called port scans–that come from everywhere, all the time, millions of times every day all day–as being “Russian hacking” is something that was both (a) 100% wrong and (b) considered 100% accurate by the news people reporting on it.

          I’m sure there are some people in the media who are enabling and even saying things they actually know aren’t true, but they aren’t in charge and are doing a job for a paycheck.

          I just think they are a lot more sincere in actually believing a delusional narrative than perhaps you do.

          I still think–as president–it would have been best to clarify what he was calling a hoax. But then, he may not have done it on purpose because he has Jedi-level trolling skills.


    • It wasn’t really his Katrina until he mislead the American people about the possibilities of it being serious.

      I don’t think he was wrong about the virus not being “serious”–at least in terms of what it is as a disease–but he was definitely wrong in terms of how serious it would be treated by the general public and the media. In terms of psychological impact, it’s very serious.

      In terms of biological impact, not so much.

      and had the gall to say he had an uncle who taught at MIT so he gets the science

      Whether intentional or instinctual, I consider all such statements “trolling”–like all narcissists, he likes to push people’s buttons. Critics may not adore him, but when he can drive you crazy by saying outrageous thing, the narcissist feels like he owns those people. So they don’t have to love him–just long as he owns them. OR at least lives rent-free in their brain.

      And as I am sure you are aware, he says stuff like this A LOT.

      He doesn’t need the help of Dems to lose his second term………..

      I still don’t think he’s going to lose in November. Might be wrong, but I just don’t see the Dems offering a better alternative. And I don’t think the folks who would vote for Trump in the first place are going to be influenced by much of anything the media has to say about him.


  4. What I think Trump is talking about when he calls Coronavirus a hoax (so to speak):

    Basically, far less fatal than the flu or pneumonia or tuberculosis, and gets more than 20 times the media coverage of SARS and HIV, 50 times the coverage of MERs, 100 times the coverage of Ebola, and then 200 times the coverage of pneumonia which has 200 times the fatality rate, at least so far.

    The last two panels comparing disease deaths per day and Media coverage are impressive. With the exception of HIV, the more deadly a disease is, the *less* coverage it gets in the media.


  5. I’m not going to argue with you guys regarding what I perceive as Trump’s abysmal performance regarding COVID-19. He’s hurt himself without a lot of help from the “Democrat media” by making false assertions and claims that are not even remotely science based. Between him and the slow rollout of testing, which is still not adequate, I don’t think any of us can make broad claims about the virus and how it will or won’t affect us.

    His assertions in the last couple of weeks were not believed by the markets and so now we find ourselves, as a country, in a more precarious position financially. The kind of support and common sense we expect from a President in a time of perceived danger just doesn’t exist in Trump. He’s so busy stroking his ego and ignoring facts that it’s clear to some of us that we can’t really count on him as a leader. That’s my opinion.

    The number of confirmed cases in the US has more than tripled since last Thursday and we have no idea how many more cases might be out there or where the virus might be spreading. I think a lot of responsible people, from state governments, community leaders and business CEO’s have taken the lead on preventing the spread and are following the advice of health experts rather than Trump. I applaud these efforts. I hope it will be contained and when it potentially resurfaces next flu season we’ll have more information and a better idea of what we’re dealing with.

    As I said previously, I haven’t been concerned for myself and I’m not afraid of getting it. We’re not stockpiling or clearing shelves of toilet paper. We are however, laying low until we have more information and I’m personally hoping that Walter doesn’t contract the virus.

    I have a dear friend in Ohio, age 59, with COPD caused by a life of asthma who has been sick since she returned from Taiwan a month ago. She has been to the doctor, the ER and Urgent Care and still hasn’t been tested. Right now she’s on steroids and over using her inhaler and nebulizer for some relief. She teaches English to people from all over the world and hasn’t been to work for a month because she doesn’t know if she has the virus or not and doesn’t want to spread it if she does. There are an awful lot of stories out there just like hers. She’s being responsible even without knowing what the hell is going on.


    • He’s hurt himself without a lot of help from the “Democrat media” by making false assertions and claims that are not even remotely science based.

      His claims are never science-based. Then again, pretty much every remotely technical argument (anything mentioning port scans or IP addresses or pretty much anything involving a computer in connection to the Russian collusion storyline was also not fact-based, so it’s kind of a universal problem).

      I’m not saying he doesn’t come off as a buffoon–he totally does. But that’s nothing new. At all. I’m just not of the opinion that it hurts him.

      and still hasn’t been tested

      That’s because the tests still aren’t broadly available, is that correct? I’m not sure about the availability of COVID19 testing.

      She’s being responsible even without knowing what the hell is going on.

      And that’s why she’ll never be president. Probably couldn’t even get elected to congress or the senate, these days. 😉

      I hope your friend gets well–or can at least get a legit test–soon!


    • lms:

      His assertions in the last couple of weeks were not believed by the markets and so now we find ourselves, as a country, in a more precarious position financially.

      I suspect the markets care more about fed/central bank activity than they do about Trump activity.

      Liked by 1 person

      • I think individual investors panic. Presumably, that can cause panic among larger investors if things drop too fast. So I can see that as a problem, although the media is a far more significant actor in sewing general panic than Trump.


        • Brent or Scott,

          How much of these large shifts down are due to automated trading? Can you guess, like, 60% of the plunge is automated trading feeding on the drop? Isn’t that why there are circuit breakers that suspend trading for periods of time?


        • I think at least 50% is HFT, and that doesn’t include the algo trading. When I see stocks and bonds lurch simulatneously, that tells me it is a big program trade, not just normal market trading.


  6. Without adequate testing, people with coronavirus symptoms are left to agonize over the right course of action on their own.

    Liked by 1 person

    • I hope we get broader testing soon. I still don’t understand exactly what the hangup is. How are some people testing so many people and we can’t seem to get our shit together to do it?


  7. This was a reasonable piece on Trump and Corona Virus:

    Liked by 1 person

    • I guess I’m finally going to have to get a subscription then!

      Liked by 1 person

    • Got it JNC and thanks.

      I think this is important and it seems to me that a lot of local action has been taken so maybe it won’t be too bad if he continues to miss his opportunity.

      Now the time his travel ban bought us has expired, and the next few weeks will be decisive. There is still a chance that state and local efforts to contain the virus can succeed, and there are still ways in which the White House could exert strong leadership to help that happen.


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